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This week's article is a bit different. In our recent reader survey, many of you asked questions about investing in Asia, so I've put together a 'how to' guide on buying shares and funds, with the focus on British investors.
The full guide is quite long, so for ease of reading, this is a shortened version. You can get a more detailed PDF version here.
Just before I start, I also wanted to let you know about some plans to expand MoneyWeek Asia beyond the weekly article. First, there's the MoneyWeek blog, where I'll be posting regular stories and comment on the latest events in Asia.
Second, for those of you who asked for more individual stock recommendations, we're thinking of launching a new service which will focus on high-quality Asian companies of all sizes, mostly listed in Hong Kong, Singapore, London and New York. The aim will be to construct a small but focused portfolio of stocks that will grow with Asia over the long term. We're still working out the details, but I hope to be able to tell you more over the next few weeks.
Anyway, let's get back to the 'how to' guide…
How to buy foreign shares
First, let's look at how investors can buy foreign shares and funds. There are three main ways to do this.
1. Open an account with a broker in your country which trades in the market you want through a local office or a partner. Popular choices in the UK include TD Waterhouse and Interactive Brokers. These discount brokers have significantly bought down the cost of trading major markets; for example, TD Waterhouse offers Hong Kong, Singapore and Australian shares online for £12 or less per trade. Other full-service brokers such as Killik and Barclays offer a wider range of markets at higher cost.
2. Use a broker that will buy the share for you through a market maker - a firm that makes a market off-exchange in foreign stocks. This can give you access to a number of markets and stocks that direct brokers don't offer because the volume doesn't justify them having a local presence there. British investors could try Redmayne Bentley, which says it will try to get most stocks in most Asian markets. On the downside, admin costs will be high for some markets (maybe £100 a trade or so) and you may pay higher prices.
3. Open an account with a foreign broker. This is often the cheapest option, but you should remember that by doing so, you go outside the UK investor protection schemes; any compensation you receive if a broker runs off with your money will depend on the local rules. If you want access to a large range of Asian markets, you could take a look at Hong Kong online broker Boom.
I've put together a table of some providers here. What you'll notice is that there's no single low-cost broker that will let you trade all the major markets around the world on one platform. In my view, TD Waterhouse is the closest as a good starter package, but some of you may be frustrated to see that it does not offer Japan.
Most Asian markets are open to foreign investors, but there are a few exceptions. Specifically, Indian markets are closed to non-Indians, there are several different types of Chinese shares and Thailand has an odd system of foreign and local shares. For details, see the longer version of the guide .
Five things to remember
You could fill a book with advice about buying foreign shares, but here are five key things that investors often don't realise:
1. When buying foreign shares, remember that rules in many markets may be weaker than you're used to. Corporate governance abuses may be more common, watchdogs less vigilant, accounting standards shakier and corruption and fraud a much higher risk.
2. Don't overlook companies listed outside their home country. Many firms choose to list in Hong Kong, London, New York or Singapore because the markets there are bigger. Investing in these may sometimes be more cost-effective than paying higher fees to buy stocks listed in their home country.
3. Many companies also have a secondary listing in London or New York through American Depositary Receipts (ADRs) or Global Depositary Receipts (GDRs). BNY Mellon has a directory of ADRs here, although not all of these are available to retail investors; many are either unlisted or only trade in big blocks between institutions. (For a fuller desciption of ADRs, see the longer version .)
4. Foreign shares, exchange-traded funds (ETFs) and investment trusts/closed-end funds can be held within an Individual Savings Account (Isa) wrapper as long as they trade on a recognised exchange and your broker permits it (most firms that offer foreign shares do, but not all). You can find the list of recognised exchanges here. It includes most major markets, but there are some exceptions, including Aim.
5. Minimum deal sizes for some shares in some markets may be larger than you expect, due to local 'odd lot' rules. An odd lot is a quantity of shares that differs from a standard-sized trading unit. In the UK, trading odd lots is not difficult, but in some markets, you may have to pay a high premium or it may not even be possible.
Investing in funds
In the survey, many of you asked if I can provide more fund ideas in the emails. There are three main categories of funds: ETFs, investment trusts/closed-end funds and unit trusts/open-ended investment companies. If you're unsure what the differences are, please see the extended guide, where I've gone into more detail.
For ETFs, the same rules on availability and costs apply as with shares. So India-listed ones won't be available to most of you and Korea-listed ones will be expensive through a UK broker, for example. I've put together a list of all the Asia-related ETFs that I know of, which you can download as a spreadsheet here.
The situation is similar with investment trusts/closed-end funds. If you can buy shares on a foreign market, you should be able to get investment trusts listed there as well. Soon I hope to produce a guide of all the closed-end funds and investment trusts. In the meantime, you can try searching sites such as Trustnet in the UK or the Closed-End Funds Association in the US.
How to buy unit trusts
Unit trusts/open-ended investment companies are a little more complicated. Not all funds are available for investors in all countries – it depends on whether they're registered for sale there. Major funds from major providers are usually registered across several countries, but there are often some odd omissions.
Others may be available as offshore funds, but these will usually be harder to get hold of. It's virtually impossible for non-US investors to get hold of US-only mutual funds.
You should consider buying through a discount broker to avoid the entry and exit fees and perhaps get a discount on the management fee; the two big UK fund supermarkets are Hargreaves Lansdown and Fidelity Funds Network (which despite being owned by Fidelity offers many funds from other providers).
However, many discount brokers don't offer funds from certain providers or won't let them be held in an Isa. If you're struggling to find a specific fund, you could try a broker such as Brewin Dolphin, which has a good reputation for the range of funds it can get - although as a full-service broker it will be more expensive than a supermarket.
You can also buy funds through a financial advisor or direct from the management company. However, buying directly is usually no cheaper and sometimes more expensive.
Compiling a full list of Asia-related funds would be a huge job since there are so many of them, but I'll try to produce a list of the most useful ones in the future. If you're looking for a specific type of fund, you can search on Trustnet and Morningstar, but be aware that just because something is listed doesn't mean it's easy to get. (That link is to the UK homepage by the way – if you're not based in the UK, make sure you switch to your home country.)
How to buy Asian bonds
Investors in Asian bonds are not as well served as investors in equities. While there are no rules to prevent you from buying bonds directly in most markets, in practice the minimum-sized deal that brokers are willing to do puts this option out of reach for most of us.
There are a number of emerging market bond ETFs, unit trusts and investment trusts, but these generally give you a very limited exposure to Asian bonds. So if you want an Asian-debt pure-play fund, your choices are limited.
There are a handful of ETFs that arose out of the Asian Bond Fund initiative, which was a regional government attempt to broaden the local bond markets in the aftermath of the Asian crisis. These hold local currency government debt.
Aberdeen offers a US-listed closed-end fund called the Asia-Pacific Income Fund, while there are also a few Asian bond unit trusts/Oeics. Because these are something of a niche product, none seem to be listed by the fund supermarkets, so you will probably have to buy them via a full-service broker or direct from the management company (buying direct is no cheaper than buying via a broker).
I haven't invested in any of these unit trusts, so I can't vouch for how simple buying them would be. If you have bought one, I'd be interested to know how easy it was in practice.
| Coverage | Manager | Name | TER | Listed |
|---|
| ETFs |
|---|
| Hong Kong |
HSBC |
ABF Hong Kong Bond Index (HK:2819) |
0.12% |
G,L |
| Region |
State Street |
ABF Pan Asia Bond Index (JP:1349) |
0.30% |
G,L |
| Malaysia |
AmBank |
ABF Malaysia Bond Index (KL:MBIF) |
0.20% |
G,L |
| Region |
State Street |
ABF Pan Asia Bond Index (HK:2821) |
0.21% |
G,L |
| Singapore |
DBS |
ABF Singapore Bond Index (SG:SBIF) |
0.15% |
G,L |
| Closed-end funds |
|---|
| Region |
Aberdeen |
Asia-Pacific Income (US:FAX) |
1.22% |
C & G, L & USD |
| Unit trusts |
|---|
| Region |
Aberdeen |
Global Asian Bond (min $1500) |
1.75% |
G, L |
| Region |
BlackRock |
Global Asian Tiger Bond (min $5,000) |
1.21% |
C & G, USD |
| Region |
BNP Paribas |
Parvest Asian Convertible Bond |
1.46% |
CB |
| Region |
Credit Agricole |
CAAM Funds Asian Income |
1.15% |
C & G, USD |
| Region |
Fidelity |
Asian High Yield (min $2,500) |
1.47% |
C, USD |
| Region |
First State |
Asian Bond Fund (min $1,500) |
1.00% |
C & G, USD |
| Region |
Legg Mason |
Western Asset Asian Opportunities (min $1000) |
1.24% |
C & G, L |
| Region |
Lombard Odier |
LODH Invest Convertible Bond Asia |
1.50% |
CB |
| Region |
Man |
RMF Convertibles Far East |
1.71% |
CB |
| Region |
Pictet |
Asian Local Currency Debt |
1.58% |
C & G, L |
| Region |
Schroder |
ISF Asian Bond (min $1,000) |
1.74% |
C & G, L |
| Hong Kong |
Schroder |
ISF Hong Kong Dollar Bond |
1.10% |
C & G, L |
| Region |
Templeton |
Asian Bond (min $1,000) |
1.39% |
C & G, L |
| Region |
Tree Top |
Convertible Pacific |
1.60% |
CB |
| C=corporate bond, G=government bond, CB=convertible bond, L=local currency bonds, USD=US dollar bonds |
How to hold foreign currencies
After my comments on the long-term outlook for Asian currencies, some of you have asked whether there are any ways to take a view on currency appreciation without having the risk of holding shares. The answer is yes, but nothing ideal.
On the ETF list above, there are some US-listed ETFs/ETNs (exchange-traded notes) for renminbi, rupee, yen and Australian dollars. These are priced against the US dollar, so if you are outside America, the returns you get will depend on how your local currency performs against the dollar.
You could consider buying one of the local currency bond funds above. However, bear in mind that a) there is a risk of an issuer defaulting and b) higher inflation or interest rate expectations will cause the market to demand higher yields, so the price of the bonds that a fund holds will fall. So you're taking on some capital risk as well as currency risk with these funds.
Alternatively, you can open a foreign currency bank account – among UK-based banks, I believe HSBC offers the biggest range. US investors have recommended Everbank; they seem to have a good selection of currencies available and as far as I know all their accounts are open to non-US investors. I've never used them myself, so I can't comment on how good their service is and what the charges are like. Obviously, when opening a bank you should check how your money will be protected if the bank goes bust.
A few fund providers, such as Fidelity, offer currency accounts; however, I don't think any of them go beyond USD, GBP, EUR, CHF (Swiss francs) and AUD. If you know of one that does, please let me know.
I hope you've found this guide useful – get the more detailed version here.
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Cris Sholto Heaton
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